The residential lettings market is both large and complicated, with a mixture of different interests and types making this up. It is also on the increase in the UK; therefore worth grasping what this actually means in the property management world and the knock-on effect on investors, landlords, and tenants.
So here are three particular aspects to be aware of:
1. The Private-Rented Element is Huge
It’s made up lots of players, and according to property consultant Savills, totals £1.2 trillion of UK stock, which is enormous when you consider commercial property forming £787 billion.
With it becoming increasingly more difficult for people to be able to afford home purchases through saving for a deposit and meeting mortgage criteria in conjunction with the general increase in demand for new homes with population increases and demographics changes, renting is becoming popular as a form of occupation. I
have been saying for years that there is a large residential property demand out there which is being held up by factors such as the economy, the financial market, construction costs, and planning-system delays.
2. The Private Rented Sector (PRS) is The Current Focus
Otherwise known as build-to-rent, this is where larger multi-unit developments are built for the purpose of shorter-term lets and income stream. It is similar to the US multi-family sector and can also cater for larger families and the top-end of the market, including on-site facilities such as communal lounge and café areas, gyms, retail shops, concierge and car parking.
One property consultant recently interviewed 16 large-scale investors in this growing market who believe it will be worth £50 billion by 2020 and having 5% of the market by value (up by 2% on today’s figures). Developments of this kind are primarily in London at the moment but with developing interest in other major cities like Manchester, Edinburgh, Cambridge, Oxford, Bristol, and Birmingham.
This is where the younger and more mobile potential-renters are who are looking for flexibility may find their feet, although the practicalities and affordability of having such leases in the ideal city-centres is challenging; getting through the planning system, working around existing transport and infrastructure, and dealing with fragmented land ownership and interests are some of the main issues.
3. Even Though Smaller-Scale Investors Dominate The Market, The Government is Encouraging This New PRS style
So, the individual smaller property investor currently accounts for over 90% of the private residential rented sector, often made up of private individuals through initiatives like buy-to-lets to build up their pensions.
Over the last few years though, the government has been making it harder for these players, and tending to favour the bigger institutions who can deliver perceived better-quality accommodation, en mass and on time. The government has a £1 billion fund to kick-start this emerging sector, and £1 billion loan guarantees incentives for affordable homes to be rented.
Compare this to tightening-up measures in the whole sector to raise the bench-mark, for example through the tax system and the new additional 3% SDLT tax on investment properties, tax-relief restrictions on buy-to-let mortgage payments and restricted annual tax break on repairs.
There are new Landlord Licencing powers which some local authorities are using; greater fines and bans for letting agents and landlords not towing the line and increased compliance requirements such as smoke-detection and electrical testing.
The principle is fine – wanting to improve the quality of accommodation in this huge and expanding market – but the smaller investor is going to have to be quick on their feet to keep up with things.
Need More Help?
Claim your FREE Property Management Pack here – including a 15-point Property Deal Cheat Sheet, and Introduction & Chapter from our amazon-best-seller book, the Property Management Guide.
Please leave comments below with any thoughts and queries.